Economics and Related Topics

I should comment quickly on the current events in Libya with regards to the Constitutional Draft Assembly’s (CDA) proposal. I should also comment on some of the circumstances in Libya that point to the difficulty of imposing a constitution in general besides current fissures.

After the photo-ops of the Paris meeting between Hafter and Sarraj, a deal that will let the Italian Navy tackle migrant smugglers in Libyan waters came under scrutiny. The deal was initiated by the GNA (UN-recognized) and critiqued immediately by the political camp of Eastern Libya and certain camps in Western Libya. Libya is already a playground for many countries. However, within the GNA there is interesting discord. A deputy went on television (Al -Ahadath TV?) and made wild accusations towards the the head of the GNA Sarraj. The deputy, Fathi Majbri, disagrees but this calls into question not the decision making process of the GNA but why there should be such displays. As if himself and Sarraj never discussed such serious policy when they have been vested with significant political powers.

It calls into question what the Presidential Council of the GNA is supposed to be. Is it rule by committee? Certainly in Libya’s climate centralization in order and command is needed but not one from a strongman. Majbri seems to argue that the PC is supposed to argue and debate issues. However, that’s probably useless since in Libya no group or body has any respect for it’s own rules. Besides Majbri, there are other members of the PC who conduct their own mandates and don’t follow the agenda of Sarraj, the appointed head and executive. Further down the chain, supposed GNA forces are nominal at best and are really mercenaries hired to be placeholders for the army. The are often allowed to continue their extortion of civilians and enjoy a culture of impunity for their crimes.

The breakdown goes to the East as well. The Wershafana area south of Tripoli is controlled by tribal militias and closer to Tripoli by Misratan militia (Brigade 301 in Swani at the moment). The Wershafanian militias levy “taxes” on freight trucks carrying food into Tripoli from farms outside the city. They commit carjackings in mid-day brazenly and just happen to be tied to Hafter’s Libyan National Army. Hafter’s claim is that his group is the only one functioning like a state institution. However, these acts continue in the region. Closer to Hafter, a Major named Werfalli executes prisoners and he’s within the organization.

The impunity is not so much the root cause of the war’s continuation as much as the disrespect and neglect of order is the cause of impunity. So many groups will find allies but will dump them not for political reasons. After all, everyone claims to be for a united, reconciled and democratic Libya. They don’t trust each other causing an escalation of commitment that has nothing to do with philosophy or tribalism. This escalation of commitment makes the constitutional draft a pointless piece of paper. People won’t commit to organizations they created to solve problems. Militants won’t even consider sincerely working for a Libyan state.

The project for a Libyan state in the GNA lacks an agenda that it is clearly committed to. At best it’s a placeholder to stop an Islamist government from stepping in that will involve the Gulf further in Libya turning it into Syria. It lacks the power of some historic governments in exile and that should frighten the UN mission in Libya.

After the Libyan revolution, plans to form a new country fell apart. There are various reasons. To name a few, lack of outside support and ulterior incentives created by Gulf nations. However, something often forgotten is the order of steps taken to form institutions. In particular, the formation of a relatively large elected body to write a constitution, which devolved into an albatross with now viable outline to date.

There were good intentions behind the formation of the Constitutional Drafting Assembly (CDA). It was pushed by concerns for representation and democracy. However, it became a monster designed by committee. There were too many people, with little incentive to work together and with objectively wrong intuitions about what a draft up for vote will look like.

Constitutional design is written about extensively in political science. In particular, mixed constitutions and constitutions for mixed populations has been discussed since Montesquieu. Nonetheless, much of the lessons in literature have not been headed. It’s not that the CDA in any draft lacked an understanding of what governments do or how governments should function and what powers to give which individuals. Rather, the CDA devolved into a partisan and sectarian mess in a fairly homogeneous society by being overly concerned at an constitutional level with representing minorities in writing when constitutions act as a securer of negative liberty most effectively by limiting government and defining its parameters. In a country as a unstable as Libya, minority rights deserve broad protection but the specifics played out unnecessarily. When incentives let groups overplay their hand and the constitutional drafting process is setup without risking the reputation of every single member severly one gets the current result.

The main cause is not that the Tebu have weapons or that Amazigh have weapons. Rather, it’s the idea that one can write a constitution in such a detached manner where the draftees are not held to account because they exist as large partisan blocs and there are many of them. They are not pushed to simplify and focus on the philosophy of the government they desire for their countrymen but rather become bureaucrats managing portfolios. It detracts from the discussion, wastes time and makes the process of building a constitutional democracy less reputable. It’s without a doubt a popular sentiment on the Libyan streets that CDA is pointless and spineless.

How can this be avoided? Changing the order in which the state is formed is the main solution. The NTC should have been firm in adopting an alternate of an older Kingdom-era document with alterations and without federalism, leaving the first elected parliamentarians the sole individuals responsible for amendments. All they needed were to enshrine freedom of expression into the any 1960s Kingdom constitution and write a preamble commemorating the shared dignity Libyans gained from the fight against tyranny. Leaving, their representatives the job of forming the specifics, such as language recognition and islamic justice. This is because much of what we would like to make of what is justice or moral as a society comes with time rather than what can ever be fitted to any charter of any kind. While positive rights can be enshrined successfully in constitutions, in instability they are harder to enforce (especially when there is no document that unites disparate parties).

To specify:

NTC leadership writes minimalistic charter based on older documents to create a common ground for courts (would solve the issues of mutiny in Libya East to West).

GNC and HoR later would add amendments (only as additions) and codify a living document to describe their duties, limits and functions.

Canada, after repatriation of its constitution, and the United States form perfect examples of the way forward for Libya on constitutional design. It is the terrible order of operations that does not force people to act to support of good institutional design and rule of law. It would be illogical to suppose Libyans do not understand what is needed to protect their rights from tyranny.

The following comes from David Card (1995) using NLSY for men. We consider the relationship of wages (log wages) to education and other controls. Of course, there is the confounding omitted variable “ability” of which little is known that’ll make our results biased. This is such an important empirical question it is part of the active research agenda till today.

Card makes the following argument, we can assume that some of the exogenous variation that education has on earnings can come from the difference in groups which leave near 4-year institutions and those who live far away from them. I have recreated the following from Card’s paper to make the case for the 4-year college distance treatment. Particularly due to it’s effect on poor and low educated households.

This is what what I want to note ever so slightly. Where colleges exist in cities it makes a difference in the lower quantiles of education fulfilment. Intuitively this makes a lot of sense. Costs to low income households are down if their children attend local universities. Running a regression with respect to the indicator variable for nearby 4-year colleges also shows a positive relation. Thus, we have a (positive) causal relationship between years of education and nearby colleges. This has one important implication in my mind, recall from my past post I mentioned the same technology hubs over and over. They came up in Enrico Moretti’s work. These are Austin, New York, Seattle, Bay Area, etc. All of them have large and highly reputable colleges. More than that they have several large and highly reputable colleges.

Thus, when we discuss the effects of human capital externalities we can probably see from the graph above a positive generational effect. If in San Francisco day labourers are attracted to the hustle and bustle of a burgeoning city their kids will have an easier time affording San Francisco University. This might be the machinery of innovative cities so many urban planners and developmental economists discuss. Don’t take my statement as definitive proof, just food for thought.

I have a STATA do. file here and Card’s data here (as a STATA .dta) for anyone interested in the IV regressions since I didn’t reproduce them in this post.

PS I remembered this paper only because I had a chance to read it as part of my advanced econometrics class. Just goes to show you it pays to read the suggested readings no matter how overwhelming the number is. Frankly, I sometimes felt like I spent more time reading them and not enough drilling some basic concepts into my head.

Enrico Moretti and other economists discussing spatial and urban economics have documented in the United States a divergence in earnings based on location. Hubs where there exists a great concentration of high skilled workers tend to be areas where all residents have high earnings relative to other regions.

This comes from the following two papers by Moretti: 2013 (with Thulin) and 2003. With this we know that high skilled labour in small cities transfers to these hubs. And married couples with high investments in human capital match up with each other and with high education hubs (Silicon Valley, Seattle, Los Angeles, Boston, etc).It then seems important in the United States if this self-sorting has any consequences on the political objectives of cities and their citizens. The recommendations Moretti makes is increased investment in education. Competition for headquarters of a large internet firm or medical research company will result in outcomes that don’t benefit the residents.

Taking this one more step (maybe a step too far) we may find the voting results of residents different as the self-sorting takes place. If the country as a whole needs greater investment in education in “knowledge” sector the voting system may limit this. The electoral college will give the rural and low density populations a disproportionate voice. As these actors attempt to protect their fortunes, they’ll election politicians who’ll save their local industries. They’ll do so with protectionist policies, subsidies, tax breaks and so on. The point is the government’s budget is constrained, it can not give rural America tax breaks for their manufacturing jobs and institute a dramatic investment in high level education. But the voting system favors the local population in low density areas, so they’ll keep voting for immediate solutions that don’t harm their welfare in the near term.

That’s not to say that proportional representation is correct form of governance but rather that the prior uncertainty (belief) in a human capital investment by rural residents is very high. This is due to the natural uncertainty anyone can have in an investment and lack of smoothing by agents (contrary to theory).

I have discussed at length on this blog last year the ways in which students don’t anticipate debt burden in a manner similar to the consumption cycle in labour economics. I think an assumption can be made for the rural voters (or voters in general) when they vote in investments in education. However, we further assume that this isn’t shown by compensating for the investment with higher taxes or certain reforms but rather compensated by lack of belief in the investment itself.

How can we model such actors? We can give them imperfect memory or a bias to their immediate welfare changes. So, a off-shoring jobs to a third world country pains them much more than the change 10 years from said off-shore in earnings after re-training. Their posterior beliefs will change but that’ll take time and experience. Again, expectations in returns to education I have discussed previously are important research interest of mine because it is surprisingly important and could be informative to many issues.

Although education policymakers have become increasingly interested in using incentives to improve educational outcomes, the evidence continues to generate, at best, small impacts, leading to the question of whether such incentives can actually change student effort toward their educational attainment as suggested by Becker’s model of individual decision making. As a whole, we find evidence consistent with this model: students eligible for performance-based scholarships increased effort in terms of the amount and quality of time spent on educational activities and decreased time spent on other activities. Further, it appears that such changes in behavior do not persist beyond eligibility for the performance-based scholarship suggesting that such incentives do not permanently change their cost of effort or their ability to transform effort into educational outcomes. And, students expected to be most responsive to the incentive – such as those with fewer time constraints and those who may be more myopic in their time preferences – likely were.

An interesting implication would be the consequences of the research on the return to education of students. If at every quarter/semester students determine to remain registered or not. Then certain incentives can for each period maximize an investment so that the next period a net positive outcome is reached. From this a bigger return to educational investment is attained.

I had three goals, one of which is broad, this summer. I aimed to do some reading on education economics and begin some empirical research, mathematics self-study, and programming practice. I have completed all with the exception that I gave up on R programming in favour for Stata and Python mix.

During the school year there is a fluid productive rhythm that work flows through. Consider this, I would wake up, run, go to class, work between classes, come home, relax then eat, do some work, some recreational reading and sleep. This is a generalization of my schedule for about 60% of the school year. The anchor here is my course schedule, which anchors my errands. It actually makes the forward horizon easy to see. I plan much of everything else around this and makes decision-making easier. However, the summer has an air of relaxation that can waste an entire day sometimes. My daily runs are usually the main anchor but that’s relatively flexible activity to move around.

Moreover, in school one can make inferences on effort from peers on work hours on specific projects since they are homogenous, as if they were econometricians themselves. Amongst mathematicians there is a tradition of autodidacts. People have often picked up textbooks and taken online courses at a pace unique from anyone else. For others, like myself, forums exist that show subjective information of mathematicians and senior students on self-study. This channel has been my way to remedy my lack of productivity anchoring. From information online I can get some sort of subject expectation of what I should be learning and how fast, as a replacement for classroom evaluation.

Of course, this is all retrospective. I used online forums to read questions about issues with proofs, programming code, book selection, etc. If I were to do it all again I would have a time sensitive schedule instead of a 3 project 3 month rule.

I have been trying to understand how to setup a panel on youth college financing, particularly a monthly panel as the yearly panel cannot give information on youth co-residence, at least I don’t think it can. Also, because the results were rubbish it is important to get the work right.

I ran into a job market paper (chapter 3) discussing almost exactly the same research but instead controls for different variables. I take into consideration family aid, grants and GPA.

I am still unsure about the estimation design using NLYS97. In particular, in Kaplan (2012) the discussion on sample design notes that co-residency question ends in 2002, at which point none of the cohorts from the survey were eligible to enter college. To replace this between 2003 and 2011 the respondents give the date of their first time moving out and first time they moved back with their parents. All these spells had to be at least three months, as noted by the question given to respondents. However, once I used these variables and followed a person for 1 year from their graduation I got incredibly imprecise results. I got no conclusions. Partly I think it’s due to the fact the once you restrict the data to a subset of college graduates you do end up with a lot of skipped responses (for valid reasons) coupled with plain missing values. Now with a better understanding of the survey I can formulate a proper panel, yearly or monthly depending on what I can actually use. It is a little difficult dealing with semester or term based variables (which are my main concern). I have to make assumption about the type of schools to make the work doable and efficient.

The job market paper is interesting. Isolating to just the effects of parental co-residence and student loans, one sees similar results to the papers discussed in the last post. What this says about using parents to smoothing consumption choices isn’t clear. Part of that is a discussion of expectations and human capital. Though the empirical evidence can be seen as an explanation of debt aversiveness or response to new budget constraints, which aren’t totally mutually exclusive from the argument of smoothing yet.